Honourable Chair and members of the committee, thank you for this opportunity to share insights that I hope will prove useful in shaping future policy. My name is Jamie Deith. I have been the founder and CEO of Eagle Graphite for 17 years. I'm very fortunate to have had a professional career of over 30 years, rich in experiences in various countries and in a range of fields, including financial markets, medical equipment and mining.
In the mining field, Eagle Graphite's primary focus has been a graphite mine in southeastern British Columbia. On paper this project is endowed with a number of significant advantages. It's environmentally pristine; it has permits for production and it has a proven track record of producing high-quality graphite. Graphite has been on critical minerals lists globally for many years and it is critically important to both traditional industries and emerging technologies crucial for the energy transition. Most notably, graphite is an essential ingredient in electric vehicle batteries, and China has a monopoly on supply.
Unfortunately, the biggest challenge—and this is shared amongst everyone in the critical minerals field—has been our inability to fund an objectively good project. Over time this inability to fund the project has taken its toll and has resulted in our recently losing the entire project to a vulture capitalist.
This outcome is all too common in critical minerals. Each failure has its own specific twists, but the common thread is the lack of capital. I cannot name a single critical minerals mining project in Canada that has achieved the goal of scale production in this century nor one that has even secured the necessary financing to do so.
The alarm bells around critical mineral supplies have been ringing for years. We all seem to want a meaningful reduction in our reliance on adversaries, yet somehow the market is unable to deliver. As Canadians, we want to play a valuable role in the western supply chain, but we've been unable to start the ball rolling on the basic supply of minerals. The capital simply isn't appearing.
In my view, the lack of capital arises because there exists too much risk in the relationship between producers and suppliers. Individual mining projects are inherently risky. Projects may fall short on quality, fail to meet production targets, miss deadlines, and frequently fail to achieve any production at all. For most end-users, capitalizing such a production is well outside their comfort zone. After all, they aren't miners, and there is already a well-established China-centric supply chain. Even the signing of binding agreements to purchase materials from an aspiring project comes with a risk of being left high and dry if the project fails.
On the other hand, more traditional capital providers, such as mine investment funds, might be comfortable with the project, but they struggle with the uncertainties of a future market price. If the users of the minerals won't commit to buying them, there is deep uncertainty about whether a mine that takes five years and a huge number of dollars to ramp up will ever be economically sustainable. This commitment gap is the biggest barrier to Canada's objective of playing a meaningful role in these supply chains. I see no realistic scenario in which existing market structures can overcome this problem without help.
To address the capitalization gap, I propose a critical mineral stabilization reserve. Here's how it could work. For each critical mineral, policy-makers determine a strategic quantity to stockpile. For instance, we could aim for a supply of lithium carbonate sufficient to meet North American demand for six months. For the sake of argument, that might be 100,000 tons. Over the course of two to three years, reserve managers gradually acquire the lithium to build the reserve, emphasizing a few key features.
First, stockpiles are acquired through transparent and competitive auctions that are held quarterly. Domestic producers get preferred terms. They still have to compete, but substantial incentives exist to favour the domestic sources over the non-domestic ones. The domestic sources will also enjoy an additional benefit of being able to forge long-term contracts with the reserve for their future production.
Even as this reserve is being ramped up, a portion of the reserve is opened up to industrial consumers of minerals. Again there are some key aspects. Just as there are auctions to acquire minerals, there are transparent and competitive auctions to sell the minerals to consumers at market rates. Domestic consumers also have to compete to purchase those minerals but they get to do so on preferred terms and they also have access to the stockpile through long-term contracts.
After the reserve reaches its target size, it continues to function as a clearing house but also as a stabilization mechanism. Stabilization occurs by allowing the reserve to sell a little more when prices go up and to buy a little more when prices go down.
Here's how everyone benefits.
The consumers of minerals benefit because transacting with the reserve eliminates the risk to any one supplier. Domestic consumers committing to Canada gain further through preferred-access provisions. The producers also benefit because the reserve is a secure buyer for their goods. Domestic producers also gain a huge advantage in being able to set up long-term, stable contracts. They can take these contracts to mine financiers, who now see a much improved financial certainty for their investments.
The benefit for Canada as a whole is a system that provides incentive for the producers and consumers to come to Canada and to remain tied to Canada for the long term. If the end goal is a vibrant and prosperous energy-transition ecosystem in Canada, this will go a long way. Perhaps most attractive of all—